21 Issued a $300 Credit Memorandum to Art Co For an Allowance on Goods Sold on July 19

Merchandising Transactions

33 Clarify and Record Transactions for the Sale of Trade Using the Perpetual Inventory System

The following example transactions and subsequent journal entries for merchandise sales are recognized using a perpetual inventory system. The periodic inventory system recognition of these example transactions and corresponding periodical entries are shown in Appendix: Analyze and Record Transactions for Merchandise Purchases and Sales Using the Periodic Inventory System.

Bones Analysis of Sales Transaction Journal Entries

Let's continue to follow California Business Solutions (CBS) and their sales of electronic hardware packages to business customers. As previously stated, each package contains a desktop computer, tablet estimator, landline telephone, and a 4-in-i printer. CBS sells each hardware package for $1,200. They offer their customers the option of purchasing extra individual hardware items for every electronic hardware parcel purchase. (Figure) lists the products CBS sells to customers; the prices are per-bundle, and per unit of measurement.

CBS'south Product Line. (attribution: Copyright Rice University, OpenStax, under CC BY-NC-SA 4.0 license)

Cash and Credit Sales Transaction Journal Entries

On July ane, CBS sells 10 electronic hardware packages to a customer at a sales price of $ane,200 each. The customer pays immediately with cash. The following entries occur.

In the first entry, Cash increases (debit) and Sales increases (credit) for the selling price of the packages, $12,000 ($1,200 × x). In the second entry, the price of the auction is recognized. COGS increases (debit) and Merchandise Inventory-Packages decreases (credit) for the cost of the packages, $6,200 ($620 × x).

On July 7, CBS sells xx desktop computers to a customer on credit. The credit terms are due north/15 with an invoice date of July 7. The post-obit entries occur.

Since the computers were purchased on credit by the customer, Accounts Receivable increases (debit) and Sales increases (credit) for the selling price of the computers, $fifteen,000 ($750 × 20). In the second entry, Merchandise Inventory-Desktop Computers decreases (credit), and COGS increases (debit) for the cost of the computers, $8,000 ($400 × twenty).

On July 17, the customer makes full payment on the amount due from the July 7 sale. The following entry occurs.

Accounts Receivable decreases (credit) and Cash increases (debit) for the full amount owed. The credit terms were n/15, which is net due in fifteen days. No discount was offered with this transaction; thus the full payment of $fifteen,000 occurs.

Sales Disbelieve Transaction Journal Entries

On August i, a client purchases 56 tablet computers on credit. The payment terms are 2/x, n/30, and the invoice is dated Baronial i. The following entries occur.

In the first entry, both Accounts Receivable (debit) and Sales (credit) increase by $16,800 ($300 × 56). These credit terms are a little dissimilar than the before example. These credit terms include a discount opportunity (2/10), significant the client has x days from the invoice date to pay on their account to receive a two% disbelieve on their buy. In the second entry, COGS increases (debit) and Merchandise Inventory–Tablet Computers decreases (credit) in the amount of $3,360 (56 × $60).

On August 10, the customer pays their business relationship in full. The following entry occurs.

Since the client paid on Baronial 10, they fabricated the x-24-hour interval window and received a discount of two%. Cash increases (debit) for the amount paid to CBS, less the discount. Sales Discounts increases (debit) for the corporeality of the discount ($sixteen,800 × 2%), and Accounts Receivable decreases (credit) for the original corporeality owed, before discount. Sales Discounts volition reduce Sales at the stop of the period to produce cyberspace sales.

Let's have the same example sale with the same credit terms, but now assume the customer paid their account on August 25. The following entry occurs.

Cash increases (debit) and Accounts Receivable decreases (credit) past $16,800. The customer paid on their account exterior of the disbelieve window only within the total allotted timeframe for payment. The customer does not receive a discount in this case simply does pay in total and on time.

Recording a Retailer'south Sales Transactions

Tape the journal entries for the following sales transactions past a retailer.

Jan. v	Sold $2,450 of merchandise on credit (cost of $one,000), with terms 2/10, n/30, and invoice dated January 5.
Jan. 9	The customer returned $500 worth of slightly damaged merchandise to the retailer and received a full refund. The retailer returned the merchandise to its inventory at a cost of $130.
Jan. fourteen	Account paid in total.

Solution

Sales Returns and Allowances Transaction Journal Entries

On September one, CBS sold 250 landline telephones to a customer who paid with greenbacks. On September three, the customer discovers that 40 of the phones are the incorrect color and returns the phones to CBS in exchange for a full refund. CBS determines that the returned merchandise can be resold and returns the trade to inventory at its original cost. The following entries occur for the sale and subsequent render.

In the offset entry on September one, Cash increases (debit) and Sales increases (credit) by $37,500 (250 × $150), the sales price of the phones. In the 2nd entry, COGS increases (debit), and Merchandise Inventory-Phones decreases (credit) by $15,000 (250 × $60), the toll of the auction.

Since the customer already paid in total for their purchase, a total cash refund is issued on September 3. This increases Sales Returns and Allowances (debit) and decreases Greenbacks (credit) past $6,000 (40 × $150). The 2nd entry on September 3 returns the phones dorsum to inventory for CBS because they have determined the merchandise is in sellable condition at its original price. Merchandise Inventory–Phones increases (debit) and COGS decreases (credit) by $2,400 (forty × $60).

On September 8, the customer discovers that 20 more than phones from the September ane purchase are slightly damaged. The customer decides to keep the phones but receives a sales allowance from CBS of $ten per telephone. The following entry occurs for the assart.

Since the client already paid in full for their purchase, a cash refund of the allowance is issued in the amount of $200 (20 × $10). This increases (debit) Sales Returns and Allowances and decreases (credit) Greenbacks. CBS does not take to consider the condition of the trade or return it to their inventory considering the customer keeps the trade.

A customer purchases 55 units of the 4-in-ane desktop printers on Oct 1 on credit. Terms of the auction are 10/xv, n/twoscore, with an invoice appointment of Oct i. On October 6, the customer returned 10 of the printers to CBS for a total refund. CBS returns the printers to their inventory at the original cost. The following entries show the auction and subsequent return.

In the outset entry on October ane, Accounts Receivable increases (debit) and Sales increases (credit) past $19,250 (55 × $350), the sales cost of the printers. Accounts Receivable is used instead of Cash because the client purchased on credit. In the second entry, COGS increases (debit) and Trade Inventory–Printers decreases (credit) by $v,500 (55 × $100), the cost of the sale.

The customer has not withal paid for their purchase equally of October 6. Therefore, the return increases Sales Returns and Allowances (debit) and decreases Accounts Receivable (credit) by $3,500 (10 × $350). The 2d entry on October 6 returns the printers back to inventory for CBS because they accept determined the merchandise is in sellable condition at its original cost. Merchandise Inventory–Printers increases (debit) and COGS decreases (credit) past $1,000 (10 × $100).

On October 10, the client discovers that 5 printers from the October 1 purchase are slightly damaged, but decides to go on them, and CBS issues an assart of $threescore per printer. The following entry recognizes the allowance.

Sales Returns and Allowances increases (debit) and Accounts Receivable decreases (credit) by $300 (5 × $60). A reduction to Accounts Receivable occurs considering the customer has yet to pay their account on October ten. CBS does not have to consider the condition of the merchandise or return information technology to their inventory considering the customer keeps the trade.

On October 15, the customer pays their account in total, less sales returns and allowances. The following payment entry occurs.

Accounts Receivable decreases (credit) for the original amount owed, less the return of $three,500 and the allowance of $300 ($19,250 – $3,500 – $300). Since the customer paid on October 15, they made the 15-day window, thus receiving a discount of x%. Sales Discounts increases (debit) for the discount amount ($xv,450 × 10%). Cash increases (debit) for the amount owed to CBS, less the discount.

Summary of Sales Transaction Journal Entries

The chart in (Figure) represents the journal entry requirements based on various merchandising sales transactions.

Journal Entry Requirements for Merchandise Sales Transaction. (attribution: Copyright Rice University, OpenStax, under CC BY-NC-SA 4.0 license)

Recording a Retailer'due south Sales Transactions

Record the journal entries for the following sales transactions of a retailer.

May 10	Sold $eight,600 of merchandise on credit (cost of $two,650), with terms 5/10, n/30, and invoice dated May 10.
May thirteen	The customer returned $1,250 worth of slightly damaged merchandise to the retailer and received a total refund. The retailer returned the merchandise to its inventory at a toll of $380.
May fifteen	The client discovered some merchandise were the incorrect color and received an assart from the retailer of $230.
May 20	The customer paid the account in full, less the return and allowance.

Solution

Central Concepts and Summary

• A customer tin can pay with greenbacks or on credit. If paying on credit instead of greenbacks, Accounts Receivable increases rather than Cash; Sales increases in both instances. A company must as well tape the cost of auction entry, where Merchandise Inventory decreases and COGS increases.
• If a client pays for merchandise within the disbelieve window, the visitor would debit Cash and Sales Discounts while crediting Accounts Receivable. If the customer pays outside the disbelieve window, the company debits Greenbacks and credits Accounts Receivable only.
• If a customer returns merchandise before remitting payment, the visitor would debit Sales Returns and Allowances and credit Accounts Receivable or Cash. The company may return the merchandise to their inventory past debiting Merchandise Inventory and crediting COGS.
• If a customer obtains an assart for damaged merchandise before remitting payment, the visitor would debit Sales Returns and Allowances and credit Accounts Receivable or Cash. The company does not have to consider the trade condition because the customer keeps the merchandise in this instance.

Multiple Option

(Figure)Which of the following accounts are used when recording the sales entry of a sale on credit?

1. trade inventory, cash
2. accounts receivable, merchandise inventory
3. accounts receivable, sales
4. sales, price of appurtenances sold

(Figure)A customer pays on credit for $1,250 worth of merchandise, terms four/15, due north/30. If the customer pays inside the discount window, how much volition they remit in greenbacks to the retailer?

1. $ane,250
2. $1,200
3. $fifty
4. $500

(Figure)A customer returns $870 worth of merchandise and receives a full refund. What accounts recognize this sales return (disregarding the merchandise status entry) if the return occurs before the customer remits payment to the retailer?

1. accounts receivable, sales returns and allowances
2. accounts receivable, cash
3. sales returns and allowances, trade inventory
4. accounts receivable, toll of goods sold

Questions

(Figure)Name two situations where cash would be remitted to a customer from a retailer later purchase.

(Effigy)If a customer purchased merchandise in the amount of $340, terms 3/10, n/30, returned $70 of the inventory for a full refund, and received an allowance for $65, how much discount would be applied if the customer remitted payment within the discount window?

(Figure)A customer discovers sixty% of the total merchandise delivered from a retailer is damaged. The original purchase for all merchandise was $3,600. The client decides to return 35% of the damaged merchandise for a full refund and keep the remaining 65%. What is the value of the merchandise returned?

Practise Set A

(Effigy)Record journal entries for the following sales transactions of Flower Company.

Oct. 12	Sold 25 bushels of flowers to a client for $1,000 cash; cost of auction $700.
Oct. 21	Sold xl bushels of flowers for $30 per bushel on credit. Terms of the sale are 4/ten, n/30, invoice dated October 21. Cost per bushel is $20 to Flower Visitor.
Oct. 31	Received payment in full from the October 21 sale.

(Figure)Record the journal entries for the following sales transactions of Apache Industries.

Nov. 7	Sold 10 computers on credit for $870 per computer. Terms of the auction are five/10, n/60, invoice dated November 7. The cost per reckoner to Apache is $560.
Nov. 14	The customer returned two computers for a full refund from Apache. Apache returns the computers to their inventory at full cost of $560 per figurer.
Nov. 21	The customer paid their business relationship in full from the November seven auction.

(Figure)Record the periodical entry or entries for each of the post-obit sales transactions. Glow Industries sells 240 strobe lights at $forty per low-cal to a customer on May ix. The cost to Glow is $23 per light. The terms of the sale are 5/15, n/xl, invoice dated May 9. On May 13, the customer discovers 50 of the lights are the wrong color and are granted an allowance of $x per light for the error. On May 21, the client pays for the lights, less the assart.

Practise Set B

(Figure)Bluish Barns sold 136 gallons of pigment at $31 per gallon on July 6 to a client with a cost of $nineteen per gallon to Blue Barns. Terms of the auction are 2/15, n/45, invoice dated July 6. The customer pays their account in full on July 24. On July 28, the customer discovers 17 gallons are the wrong color and returns the paint for a full greenbacks refund. Blue Barns returns the gallons to their inventory at the original cost per gallon. Record the periodical entries to recognize these transactions for Bluish Barns.

(Figure)Canary Lawnmowers sold 70 lawnmower parts at $five.00 per part to a customer on December 4 with a cost to Canary of $3.00 per function. Terms of the sale are v/ten, n/25, invoice dated Dec 4. The customer pays their account in full on Dec xvi. On December 21, the customer discovers 22 of the parts are the wrong size only decides to go along them after Canary gives them an allowance of $ane.00 per part. Record the periodical entries to recognize these transactions for Canary Lawnmowers.

(Figure)Tape periodical entries for the following sales transactions of Balloon Depot.

Mar. eight	Sold 570 balloon bundles to a customer on credit for $38 per bundle. The toll to Airship Depot was $25 per bundle. Terms of the sale are 3/10, n/30, invoice dated March eight.
Mar. 11	The customer returned seventy bundles for a full refund from Balloon Depot. Airship Depot returns the balloons to their inventory at the original cost of $25 per bundle.
Mar. 18	The client paid their account in full from the March 8 buy.

Problem Set A

(Effigy)Review the post-obit sales transactions for Birdy Birdhouses and record any required journal entries.

Aug. ten	Birdy Birdhouses sells 20 birdhouses to client Julia Brand at a price of $70 each in commutation for cash. The cost to Birdy is $46 per birdhouse.
Aug. 12	Birdy Birdhouses sells 30 birdhouses to customer Julia Make at a price of $68 each on credit. The toll of sale for Birdy is $44 per birdhouse. Terms of the auction are ii/ten, n/30, invoice date August 12.
Aug. fourteen	Julia discovers 6 of the birdhouses are slightly damaged from the August 10 purchase and returns them to Birdy for a full refund. Julia besides discovers that 10 of the birdhouses from the August 12 purchase are painted the wrong color but keeps them since Birdy granted an assart of $24 per birdhouse.
Aug. xx	Julia pays her account in full from the Baronial 12 purchase, less any returns, allowances, and/or discounts.

(Effigy)Review the following sales transactions for Dish Mart and record whatsoever required journal entries. Note that all sales transactions are with the same customer, Emma Purcell.

Mar. 5	Dish Mart made a cash sale of 13 sets of dishes at a toll of $700 per fix to customer Emma Purcell. The cost per set is $460 to Dish Mart.
Mar. 9	Dish Mart sold 23 sets of dishes to Emma for $650 per set on credit, at a toll to Dish Mart of $435 per set. Terms of the sale are 5/fifteen, n/lx, invoice date March 9.
Mar. 13	Emma returns eight of the dish sets from the March nine sale to Dish Mart for a full refund. Dish Mart returns the dish sets to inventory at their original cost of $435 per set.
Mar. 14	Dish Mart sells vi sets of dishes to Emma for $670 per set on credit, at a cost to Dish Mart of $450 per set up. Terms of the sale are 5/ten, n/sixty, invoice date March 14.
Mar. fifteen	Emma discovers that iii of the dish sets from the March xiv purchase, and 7 of the dish sets from the March 5 sale are missing a few dishes, just keeps them since Dish Mart granted an allowance of $2,670 for all 10 dish sets. Dish Mart and Emma have agreed to reduce the amount Dish Mart has outstanding instead of sending a separate cheque for the March 5 allowance in cash.
Mar. 24	Emma Purcell pays her account in total for all outstanding purchases, less whatever returns, allowances, and/or discounts.

Problem Set B

(Figure)Review the following sales transactions for April Anglers and record any required journal entries.

Oct. 4	Apr Anglers made a cash sale of 40 angling poles to customer Billie Dyer at a price of $55 per pole. The toll to April is $33 per pole.
Oct. 5	Apr Anglers sells 24 angling poles to customer Billie Dyer at a toll of $52 per pole on credit. The price to April is $thirty per pole. Terms of the sale are ii/10, n/30, invoice date October 5.
Oct. 12	Billie returns 7 of the fishing poles from the October 4 purchase to April Anglers for a full refund. April returns these poles to their inventory at the original cost per pole. Billie also discovers that 6 of the angling poles from the Oct 5 purchase are the wrong colour but keeps them since April granted an allowance of $18 per fishing pole.
October. 24	Apr pays their account in full from the October 5 purchase, less any returns, allowances, and/or discounts.

(Figure)Review the following sales transactions for Dish Mart and tape any required journal entries. Note that all sales transactions are with the aforementioned customer, Bella Davies.

Apr. 5	Dish Mart made a cash sale of 22 sets of cutlery to Bella Davies for $330 per prepare. The cost per gear up to Dish Mart is $125 per ready.
April. nine	Dish Mart sells fourteen sets of cutlery to Bella Davies on credit for $345 per fix. The cost per ready to Dish Mart is $120 per prepare. Terms of the auction are 2/15, n/60, invoice engagement April ix.
Apr. 13	Bella returns 9 of the cutlery sets from the April nine sale to Dish Mart for a full refund. Dish Mart restores the cutlery to its inventory at the original cost of $120 per prepare.
Apr. 14	Bella purchases 18 sets of cutlery for $275 per assault credit, at a cost to Dish Mart of $124 per set. Terms of the auction are two/10, north/60, invoice engagement April 14.
Apr. 15	Bella discovers that 5 of the cutlery sets from the April 14 purchase and 10 of the cutlery sets from the April v purchase are missing a few spoons but keeps them since Dish Mart granted an allowance of $175 per set for all dish sets. Dish Mart and Bella have agreed to reduce the amount Bella has outstanding instead of sending a separate cheque for the April 5 allowance in cash.
Apr. 28	Bella Davies pays her account in full for all outstanding purchases, less any returns, allowances, and/or discounts.

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Source: https://opentextbc.ca/principlesofaccountingv1openstax/chapter/analyze-and-record-transactions-for-the-sale-of-merchandise-using-the-perpetual-inventory-system/

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